With the collapse of the Chinese real estate market and the ongoing economic downturn, more and more people are choosing to default on their mortgages, leading to a surge in residential foreclosures. In the first half of this year, second-tier cities such as Zhengzhou, Xiamen, and Suzhou saw a year-on-year increase of over 40% in foreclosed residential properties, with institutions predicting that this trend will continue to rise.
According to a report from the market research organization Ke Research, in the first half of the year, the listed volume of foreclosed residential properties in China reached 202,000 units, a year-on-year increase of over 12%.
The increase in foreclosed properties is most noticeable in second-tier cities. For instance, Zhengzhou saw a whopping 43% increase in listed properties in the first half of the year compared to the same period in 2023, with a total of 5,138 units. Xiamen, Suzhou, and other cities also experienced over a 40% year-on-year increase in the listing of residential foreclosed properties.
According to a report released by the China Index Research Institute on July 24th, the cumulative number of various types of foreclosed properties in the Chinese market reached 382,000 units in the first half of this year when calculated by total caliber. This indicates that residential foreclosed properties account for nearly 53% of all foreclosed properties.
An individual engaged in distressed asset management in Chongqing told Cai Xin that since 2023, people have been defaulting on their mortgages one after another, leading to some properties being put up for judicial auction. Some individuals had previously used loans to buy properties but due to a significant drop in housing prices, the evaluation values provided by banks have also drastically decreased in comparison to a few years ago, affecting the renewal loan amounts. Consequently, a small portion of the population ultimately chose to default. In the first half of 2024, Chongqing had 5,438 units listed for foreclosure, ranking first among the top 50 cities for residential foreclosure transactions with 2,499 units sold.
The source mentioned that typically, foreclosed properties start at 70% of the evaluation price. However, with current rapid declines in property prices, there is a time gap from evaluation to the actual auction of foreclosed properties; and it is challenging to directly negotiate a bottom price during auctions, making it less likely for opportunistic buying in foreclosed properties. In Chongqing, the recent transaction prices of foreclosed properties usually align closely with the resale prices of second-hand homes in the same area.
Ke Raye of Ke Research stated that the real estate market is still in a downward phase, coupled with economic pressures. Groups that heavily leveraged property purchases in previous years are facing increased repayment pressures, raising the risk of loan defaults. This indicates that the supply of residential foreclosed properties is expected to continue to rise.